01. Student Housing Apartment Complex

SITUATION:

An established commercial property management LLC owned a contemporary apartment complex which primarily served the student housing market. The vast majority of tenants consisted of students attending a nearby, major State University. Ownership purchased the property in 2007 by securing a CMBS loan for $4,500,000. Like many similar transactions of the time period, this loan was underwritten close to the apex of the housing/valuation bubble of 2005-2007.

Ownership purchased the student apartment complex with projections of maintaining what were, initially, consistently high occupancy rates and competitive asking rents. However, new construction in a nearly saturated student housing market quickly drove up unit vacancies. Additionally, this particular property’s image had been tarnished due to a high-profile crime that had occurred on the grounds in recent years. The new owners struggled to remain afloat as they faced what seemed like an insurmountable wall of circumstantial obstacles.

To further complicate matters, the onset of the housing and credit collapse in 2008 resulted in a steep, immediate decline of the property’s market value. The owners were forced to contest with a seemingly unending pattern of adjusting asking rents downward in an effort to remain competitive among their primary market segment. Climbing vacancy rates, compounded by deep concessions, yielded cash flows that fell well short of the levels necessary to remain current on the debt service obligation.

Soon after falling behind on loan payments, the lender initiated foreclosure proceedings against the borrower group. Despite the ownership’s best, concerted efforts to sustain the apartment complex, a court-appointed receiver was put into place and took full control of the property. The borrower group found themselves facing an all-too-common set of conditions, experienced by many present day property owners also struggling against an impending foreclosure. Ownership had a just few short months remaining in which they might organize an effective plan to save the asset from foreclosure.

WHAT WAS DONE:

Alliance Commercial Group’s professionals established an immediate, direct line of communication with the Special Servicer and successfully fast-tracked the workout resolution process. Solution terms were effectively developed, reviewed, and subsequently approved by the Special Servicer (on behalf of the Bondholders of the Trust) as a preferred alternative over a traditional foreclosure. An amicable resolution for the apartment complex included a 1-year mortgage payment forbearance period coupled with reasonable waterfall provisions to ensure long-term sustainability. The agreement also stipulated an end to the receivership and allowed the owners to return to their property.

Furthermore, following the conclusion of the payment forbearance period, the agreement terms also afforded the Borrower an option to purchase the note at a discounted level of $2,800,000. Given the fact that current unpaid loan balance was still $4,500,000, the borrower was able to counter the effects of the recent market collapse through the realization of a 40% discount of the debt load. In addition, a waiver of nearly $800,000 in penalties and fees was granted. Through Alliance Commercial Group’s execution of a realistic, appropriate set of resolution terms, the owners kept their property.
02. Commercial Business Park

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News

Long Island’s shrinking industrial space has placed expanding tenants in a tough spot, forcing them to look east to Suffolk County and off the island entirely, according to real-estate services firm JLL.